Why Everyone is Watching the Sharing Economy

The now popular pink Lyft mustache, an emblem of the ride sharing company and its volunteer drivers.
Lyft

In the past several years Lyft, Uber, Airbnb and other peer-to-peer sharing platforms have taken flight, offering consumers a dramatically cheaper, or free, alternative to typical rentals and purchases. These companies use mobile apps and Web platforms to match people willing to share a room or a car with others who need a ride or place to stay.

The growing industry, which enthusiasts tout as a revolution in consumerism, is estimated to be worth as much as $26 billion, a figure offered by author Rachel Botsman in her book What’s Mine is Yours, which chronicles the movement. But while an economic benefit, the burgeoning peer-to-peer economy has also disrupted traditional business models and upset the regulatory status quo.

Existing companies have pointed a quizzical and perhaps antagonistic eye at the newcomers, and government officials have struggled to properly regulate the sharing startups since they often don’t operate by the same rules as their traditional counterparts.

Most recently, liability issues surfaced in San Francisco, where on Jan. 27 a family filed a lawsuit against the ride sharing app Uber after a driver associated with the service killed their 6-year-old girl in a crosswalk on New Year’s Eve. Uber contends it's not liable for the girl's death because driver Syed Muzaffar was not working for the service at the time of the accident.

Intensely polarizing, the incident highlights the complexities evolving inside the sharing economy’s swelling growth. The case, although definitely not representative of the large majority of peer-to-peer communities and users benefiting from sharing's momentum, does call up many questions that regulators are struggling with around safety, taxation, oversight and other issues.

‘Share’ is the New ‘Buy’

Veronica Juarez, director of government relations at the ride sharing company Lyft, has been at the heart of the booming peer-to-peer movement as her company evolved into a pace setter in civic tech growth.

Juarez said the San Francisco-based company has grown significantly since its 2012 launch. At the start of 2013, Lyft served a single market, San Francisco. By the end of the year, the company offered ride sharing in 20 different cities, she said. Lyft's network had arranged 1 million shared rides by mid-2013.

"The popularity and use of Lyft is undeniable,” Juarez said. "The numbers clearly show that people are changing the way they do business, and that's huge."

That popularity is translating into sizable investment. A recent report by the Knight Foundation says peer-to-peer sharing activities grew 36 percent from 2009 to 2012, making it one of the fastest growing segments of civic technology. Investors pumped $234 million into peer-to-peer companies over that time period, the report says.

Juarez says platforms like Airbnb and Lyft are popular because they reduce limitations on travel. Before, paying for a hotel was the only way to visit new destinations. Now, available rooms don’t have to come with hefty price tags. Similarly for transportation, by chipping in a bit, passengers can travel without shouldering typical taxi cab costs.

"People now have a more economical option when they travel for a place to stay. By increasing these options you’re actually increasing the access for people to do things they wouldn't normally have had the ability to do,” she said.

Regulators, Juarez said, eventually will embrace peer-to-peer sharing for its ample community advantages. Yet she acknowledged that more dialog with municipalities and government officials will be needed as growth continues. Lyft has hired more staff to facilitate interchange between itself and government jurisdictions, she added.

"The biggest question will be how government leadership is going to embrace this innovation in a way that it can flourish and still protect consumers,” Juarez said.

The new regulations impose criminal background checks, training programs, minimum insurance levels and disabled passenger accommodations. But they also represent an obvious victory for peer-to-peer companies because they officially legalize the industry as whole in California while setting a foundation for other governments to model.

Legalization Through Regulation

Recent peer-to-peer victories inspire confidence, but they're still far from a universal endorsement from legislators. Sharing companies have miles to go before they're recognized in all 50 states. Ample challenges await. The lodging industry is clamoring for companies like Airbnb, a Web-based room sharing platform, to be taxed and regulated by the same standards as traditional hotels. In New York, the lodging industry has pushed the state attorney general to investigate the issue, still in dispute, through a subpoena for Airbnb’s host records.

Similarly, in Chicago, Bloomberg reports that taxi operators sued the city after Mayor Rahm Emanuel submitted to the city council a proposed ordinance regulating transportation network providers through licensing and insurance and vehicle standards. In the lawsuit, Chicago-area taxi operators claim the city has devalued their industry -- Bloomberg estimates its worth at $2.38 billion -- by permitting ride sharing.

As regulators grapple to define the edges of this nascent industry, there appears to be no one solution that will appease both traditional businesses and civic technology newcomers. However, the California ruling may offer a viable model since regulators focused on safety versus refereeing industry revenues.

“What we're trying to do is not try to side with the taxis or side with the [transportation network companies], we’re just trying to make sure that there are regulations in place to promote safety and customer choice,” said Marzia Zafar, director of the CPUC’s Policy and Planning Division.

Before CPUC commissioners made the decision to legalize ride sharing companies through regulation last September, Zafar said they’d heard from taxi companies that were ardently opposed to ride sharing and ride-sharing companies that sought limited regulation. In the end, Zafar said the commissioners based their decision on what was best for the public as a whole. Safety and choice turned out to be the bottom line.

“Regulation should not pick winners or losers, but rather, regulations should be there for the public interest, to protect the basic consumer rights and institute consumer protection,” Zafar said.

For the commissioners this translated into regulations that will come in two phases for ride sharing companies. The first phase, already established, requires ride sharing companies to carry insurance coverage worth a minimum of $1 million per incident. It also requires criminal background checks for drivers, a 19-point inspection for vehicles, a driver training program, disabled access. Furthermore, any company wishing to operate as a ride sharing service must first be approved by the CPUC.

The second phase of regulation, Zafar said, will be to make sure the state's limousine regulations match the updated ride sharing requirements and to plug any insurance liability gaps. A new working group, spearheaded by Lyft and called the Peer-to-Peer Rideshare Insurance Coalition, has been launched to promote dialog on insurance practices for the new industry.

The coalition, in which the CPUC will act as a participating observer, is composed of ridesharing companies and insurers and aims to generate insurance best practices, policies and information for ride sharing in addition to creating insurance partnerships.

“We want to see if the industry is going to introduce additional insurance for [ride share] drivers and the [companies] themselves,” Zafar said.

A Gradual Shift

Beyond regulatory hurdles and opposition from traditional industries, perhaps the biggest impediment to continued growth of the sharing economy is cultural — America’s attachment to consumerism.

"People get really excited about this as an idea but it really is a commitment to a kind of culture,” said Brian Boitmann, founder of Acts of Sharing, a social media site that helps users share consumer goods. “It's about retraining us even when our culture pushes us toward consuming.”

When Acts of Sharing launched in 2010, Boitmann was studying at the University of Texas at Austin, and said he remembers the mental hurdle presented itself pointedly as the company struggled to raise awareness and use of the platform.

“We were seeing some success but not the kind of exponential success we expected during the first year,” he said.

Taking the challenge as a call to pivot, Boitmann began experimenting with the platform by offering it to neighborhoods, universities, schools, churches and community organizations. The common denominator of all these outlets, Boitmann said, was an infrastructure of trust.

“We kept seeing that if you could work in more established communities, where people could start sharing in a place where there was a critical mass, that trust was already there,” he said.

The company has since achieved constant growth as users join and Boitmann markets customized versions of his sharing platform to communities, that in turn, offer the sharing program to their members, free of charge. To date, most shared items have included text books, tools and nearly any type of appliance valued between $75 to $200.

The Shared Ideal

The vision behind the peer-to-peer sharing movement is long term, ambitious and admittedly still a work in progress. Supporters want to make the practice a staple of urban life, and they belief that shared use can translate into large gains and reduced costs for communities.

“On our side of the coin there is a fun ‘rage-against-the-machine’ kind of the thing going on, where you can say, ‘we don't have to spend money on certain things,’” Boitmann said. "That's what we've always been about: allowing local communities to do a greater job at managing and supporting one another with the resources we have.”

Juarez said it's not unthinkable that ride sharing may one day allow many households to delay or avoid purchasing their own cars. "We're talking about potentially cutting out a huge expense for individuals and families,” she said.

As the current peer-to-peer companies grow, and more pop up, Boitmann and Juarez said the sharing economy will influence how people relate to each other and connect. Lyft already has seen bands formed, restaurants launched and jobs found — all via connections made though the company's ride sharing network.

"We've seen that what's grown out of this. … It's a win-win,” Juarez said, “Not just for their pocket book but also for — and this may sound silly — but for their psyche too.”